WHAT’S THE ISSUE OR OPPORTUNITY?
Delaware has legislatively created a new voluntary disclosure application (VDA) program for unclaimed property. Unclaimed property includes saving or checking accounts, uncashed checks or refunds, trust distributions, unredeemed money orders, insurance payments, refunds, CDs, customer overpayments, utility security deposits, royalty payments, gift certificates and other types of property. The list is very expansive and likely effects all entities organized or incorporated in Delaware.
There are two ways that unclaimed property can "escheat" (revert to the property of the state) in Delaware:
- If the address of the owner of the property is known by the "holder" (the company, in most instances) and that address is in Delaware.
- If the address of the owner is not known and the "holder" is incorporated or organized in Delaware.
WHY IS IT IMPORTANT?
Delaware is very aggressive in this area. There are no statute of limitations for noncompliant holders of unclaimed property. Delaware regularly and consistently conducts unclaimed property examinations back to 1981 or the company’s date of incorporation, whichever is later.
Delaware auditors extrapolate for all open years when records are not available, leading to large assessments. Further, when interest and penalties are factored in, the resulting liability may be significant. 60% penalties may be charged up to half the value of the property due in each report year, and interest accrues at a rate of 6% annually up to half the value of the property.
Applying before June 30, 2013 will shorten the look-back period from 1981 to 1996.
However, if the VDA is initiated after June 30, 2013 but before June 30, 2014 an additional three years will be added to the look-back period (1993). After June 30, 2014 the VDA program is complete unless legislatively reenacted.
WHO DOES IT PERTAIN TO?
Entities organized or incorporated in Delaware with past due unclaimed property that have not received a notice of audit, and are not currently under audit by Delaware are eligible. Companies who entered into prior voluntary disclosure agreements are still eligible to enter into a new voluntary disclosure agreement for property types and periods not covered in the prior voluntary disclosure agreements.
WHERE TO BEGIN? (QUALIFYING QUESTIONS TO ANSWER)
1. Is your company organized or incorporated in Delaware?
2. What year was your company organized or incorporated?
3. Does your company have unclaimed property? If yes, what types?
4. Has your company file unclaimed property returns in Delaware or other states?
5. Has your company received a notice of audit, currently under audit by Delaware, or initiated participation in a prior Delaware VDA program?
For more information, check out my previous post in February 2013.